Sterling Energy PLC on Monday said the “sustainable recovery” in oil and gas markets is unlikely to cause increased investor appetite for exploration assets and said it plans to continue scaling back production in the meantime while pursuing mergers and acquisition opportunities.
Sterling shares were trading down 6.3% on Monday morning at 15.0 pence per share.
Sterling has high potential exploration projects in Mauritania and Somaliland together with a production and royalty interest in Mauritania. Sterling has economic interests in the Chinguetti field in Mauritania through a funding agreement with the country’s national oil company and a royalty agreement with London-listed Premier Oil PLC.
The company’s net production in 2016 from the Chinguetti field, including royalty barrels, fell to an average of 279 barrels per day from 310 barrels per day in 2015. Production has been steadily falling throughout the downturn, with Sterling’s net production standing at 432 barrels daily in 2014, as the partners are set to start the decommissioning and abandonment phase in 2017.
At the end of 2016, net 2P reserves at Chinguetti stood at 73,000 barrels of oil equivalent, having fallen from 173,000 barrels at the end of 2015.
Sterling exited from a series of exploration assets during the year within Mauritania, Madagascar and Cameroon, and the company said it remains in a solid cash position of USD88.1 million, down from USD97.6 million at the end of 2015, with no debt. Reining in spending has been a priority over the last couple of years, with general and administrative costs down 20% in 2016 with further reductions to be made in 2017.
“While the global oil price has seen a marked and what appears to be a sustainable recovery, it is very unlikely that in the near term this will impact positively on the industry or investor appetite for exploration assets. We shall pursue our new business model cautiously, preserving resources in anticipation of a recovery in market conditions and investor sentiment towards active exploration driven strategies,” said Chairman Michael Kroupeev.
“Whilst we wait for this recovery, we will continue to actively investigate possible acquisition or merger opportunities, to deliver a more balanced, revenue focused portfolio of assets,” he added.
Sterling reported a decline in revenue in 2016 to USD4.8 million from USD5.0 million in 2015, but managed to book a gross profit of USD2.6 million rather than the USD997,000 loss made in 2015.
Total administrative expenses fell to USD11.4 million from USD14.3 million, primarily because the company avoided repeating one-off charges that were recorded last year, including a USD3.7 million charge for an onerous contract. However, Sterling did not benefit from the USD2.2 million gain from cessation costs that were booked in 2015.
Pre-licence costs declined to USD2.0 million from USD2.2 million, impairments of assets fell to USD7.4 million from USD8.2 million and other administrative costs fell to USD2.0 million from USD2.3 million.
The result was a loss from operations of USD8.8 million in 2016 versus a USD15.3 million loss the year before. The pretax loss came in at USD8.5 million, narrowed from the USD16.0 million loss booked in 2015.
Although it has divested from a string of exploration assets, Sterling has not ceased exploration altogether. A 2D seismic campaign will be conducted over the Odewayne block in Somaliland in the second quarter of 2017.
“With regards to the Sterling portfolio, we have the potential to deliver material value to our shareholders in the Somaliland and Mauritania assets over the next few years. We look forward towards the completion and interpretation of the Somaliland regional 2D seismic survey in the second half of 2017 and the C-10 joint venture [in Mauritania] drilling a material exploration well in 2018,” said Chief Executive Eksil Jersing.
“On the growth front, we restructured our capability set in 2016 to focus on M&A led due diligence efforts. As a result we undertook lengthy evaluations on a number of projects. We will continue on this M&A led mandate in 2017, with the intent of originating, delivering and executing on a transformative asset or corporate solution,” Jersing added.
By Joshua Warner